It's 2021 and you've started your journey as an investor. Cryptocurrency is on a booming bull run, and all of a sudden there's a new buzzword in town. NFTs have become all the rage ever since an artist called Beeple sold his for 69 million dollars. What just happened?
Non-fungible tokens or NFTs for short are a new form of digital assets powered by blockchain that have taken the world of collectibles by storm. And much like collectibles, they also make for a great investment opportunity!
Artists, founders, organisations and all kinds of people have now started leveraging the power of NFTs to create artwork and collectibles worth millions of dollars. At first look, it seems like creating and selling NFTs is an investing and wealth creation opportunity for the rich and famous. Recently Twitter founder Jack Dorsey sold his first ever tweet for over $2.9 million as an NFT. Is there any room for regular folk like you and I to profit from this new opportunity? There sure is! Let's have a look at what regular investors like you and I can do to profit from this billion dollar opportunity.
Where's the Opportunity?
The market for global collectibles stood at $370 billion as of 2016. From comic books to cars, people with wealth have all kinds of interests, and are willing to pay big money to add things they consider valuable to their collection. This market value does not even include artwork, which is by far the most expensive and valuable collectibles market!
As we step into the second decade of the 21st century, we are at an important crossroads where the internet has penetrated our lives to an extent which is highly unavoidable. The rise of the internet has given way for the creation and exchange of digital assets like websites, art and most recently - lead to the explosive growth of blockchain based assets like decentralised currency and digital art!
Paintings like the Mona Lisa are valuable because they cannot be replicated. The same cannot be said for digital assets. If you create an artwork and put it up online, anyone can download a copy of this asset. However, NFTs have changed this game because there can only ever be one "true" copy of a piece of digital artwork. This makes them increasingly valuable!
How Can I Invest in NFTs?
Much like anything crypto related, NFTs are still pretty much in Wild West territory, which means valuing an asset can certainly be a hard task. However, NFTs like CryptoPunks have exponentially grown in value since their inception, with some of the earliest punks selling for over $500,000. That is some price to pay for some tiny pixel art!
How To Buy Your Own NFTs
Step 1: Buy Cryptocurrency
The first thing you will need to do is to buy some cryptocurrency (if you haven't already done so. The most commonly used cryptocurrency for NFT transactions is Ethereum. You can buy cryptocurrency using any major platform such as Binance or Coinbase.
Primarily, there are two ways to purchase an NFT. You can either use Ethereum (ETH) or buy your chosen NFT with a credit card. Usually, credit card purchases are only available only on bigger platforms while Ethereum is accepted on all NFT platforms.
Step 2: Transfer Your Cryptocurrency to Metamask
Metamask is a fairly popular crypto wallet which can be connected to almost all major platforms. It comes as a web extension and a mobile app so you can just download it, make an account and start making transactions. Metamask will make it extremely easy for you to directly buy your NFT from your platform of choice.
Step 3: Make an NFT Marketplace Account
Where you want to make an account will depend on the kind of NFT you want to buy. Ideally, you should always have done your research on the NFTs you expect to appreciate in value. This can be based on a number of things like prominence of the artists, cultural significance and past performance among other things. Once you have identified the kind of NFT you want to buy, you can check which marketplaces are selling those. There are a number of marketplaces to choose from like Nifty Gateway, OpenSea and MakersPlace.
Step 4: Buy Your NFT
Once you have funded Metamask, or your account you can buy an NFT relatively easily. Most marketplaces tend to auction NFTs so you will have to submit a bid for the NFT you wish to purchase.
How Can You Profit From NFTs?
Like any investment, the value of an NFT is derived from the perceived consumer interest.
Just like pieces in our hypothetical art collection, consumer interest drives the value of an NFT. Similar to trading cards, the rarity and base of interested consumers influence their worth. This is why it is important to do your research on what you think could appreciate over time in terms of value. This could mean identifying a lesser known artist who you think has the potential to blow up in the future, or a more popular one selling an NFT for an affordable price.
The key to making money from NFTs, much like other investments, is to hold your asset long enough to make a good amount of profit on your original investment, and much like other investment opportunities, NFTs are risky, and must be well researched before they are bought! While you can see you initial investment double or triple in value, you can also lose a large amount of money. Make sure you only invest any amount of money you are comfortable with losing.
A Note On Transaction Fees
NFTs are highly speculative investments that promise great returns with equal risks. There are some things you can keep in mind when you decide that you are ready to explore this world of digital collectibles.
Any transaction on the Ethereum network incurs a transaction fee. The exact cost of this transaction fee is going to depend on what people in the crypto world called "gas" price. You can choose to select your own "gas" price, and the more you are willing to pay, the faster your transaction will proceed. Wallets like Metamask will give you certain options to choose from, but if you want to have more control over both the cost and speed you can use ETH Gas Station
Transactions on the Ethereum network will incur a transaction fee. The exact cost depends on the “gas” price you select. The more you’re willing to pay, the faster the transaction will be processed. Metamask will select this for you by default or give you an option to select slow, average, or fast speeds.ETH Gas Station to figure out what the optimal gas price is. On Metamask, you can change the gas price by looking for advanced setting and changing the Gwei to your desired value.
Because of the current popularity of NFTs, popular ones get sold out pretty quickly (sometimes even within a day). It's good to have a tracker with the latest NFT drops so that you can be notified when your favourite artists release their NFTs. Crypto.com has its own NFT drops list that can be quite a handy tool for beginner investors!